FAQs ON THE SECOND STAGE EU-US "OPEN SKIES" AGREEMENT AND EXISTING FIRST STAGE AIR SERVICES AGREEMENT

On 25 March, after eight rounds of negotiations, negotiators reached tentative agreement on a 'second stage' air services accord which builds upon the success of the 2007 EU-US Open Skies Agreement.

FAQs ON THE NEGOTIATIONS ON A SECOND STAGE EU-US AIR TRANSPORT AGREEMENT

What are the new elements of the second stage agreement?

A large number of elements will enter into effect immediately:

A close cooperation on environmental matters. The agreement will establish a broad framework to tackle the local and global environmental challenges for aviation. Both sides agreed to ensure consistency and avoid duplication between their respective emission trading schemes. This will reduce the costs of climate change measures for airlines and consumers. The agreement will promote greater transparency on noise-based operating restrictions at airports (e.g. night-flight bans). Furthermore, both sides committed to a close cooperation on green technologies, fuels and air traffic management innovation and to joint efforts in ICAO to address the climate change impact of international air services.

Further access to US-Government financed traffic. Under the "Fly America" program, US-Government financed air traffic is reserved to US airlines. The agreement gives EU airlines full access to sell tickets to contractors of the US Government and a partial access to the air travel of US Government officials.

Even closer cooperation on aviation security with a view to achieving maximum reliance on each other's security measures and avoiding duplication. The cooperation will also be based on coordinated responses to new threats and consultations prior to introducing additional measures. This will reduce the hassle for passengers while ensuring a maximum of security.

A mutual recognition of regulatory decisions. This will substantially simplify the procedures, reducing the regulatory costs for airlines. For example, US authorities will rely on Member States' regulatory decisions that an EU airline is financially fit and European-owned when dealing with applications from EU airlines.

Further increasing the transparency of the cooperation between the competition authorities concerning transatlantic airline alliances.

An extended role of the Joint Committee. The Joint Committee established by the EU-US Air Transport Agreement as monitoring body has demonstrated its benefits to aviation authorities and stakeholders on both sides of the Atlantic. Its role will be extended to matters of aviation safety, air traffic management, passenger facilitation and the mutual recognition of regulatory decisions.

The agreement commits both sides to implement it in a way that does not undermine labour rights. This is the first time that an air transport agreement includes an explicit commitment to high labour standards.

Other elements will enter into effect at a later stage as they are subject to legislative changes on either side:

The reciprocal liberalisation of airline ownership and control. This will require legislative changes in the US. Currently, foreign ownership in US airlines is limited to 25% of voting rights. Upon legislative change in the US, the EU will reciprocally allow majority ownership of EU airlines by US nationals.

The right for EU airlines to fly between the US and a number of non-European countries (so-called "7th freedom right") as well as the removal of obstacles for European majorityinvestment in third country-airlines by facilitating access to the US market. These rights are subject to legislative change in the EU concerning noise-based operating restrictions at airports.

What is the anticipated economic benefit of this agreement?

The economic benefit to be gained from the full implementation of the Second Stage agreement has been independently estimated to be equivalent to the transatlantic benefit to be expected out of a successful conclusion of the Doha round of trade liberalisation negotiations.1

What is the link between the first and second stage agreements?

On March 30, 2008, the First Stage EU-US "Open-Skies" Agreement came into effect, introducing new commercial freedoms for operators and an unprecedented framework for regulatory cooperation in the field of transatlantic aviation. The agreement replaced the individual agreements Member States had with the United States, and removed all barriers for airlines of either side wishing to fly between and beyond Europe and the United States. For the first time, European airlines could operate from bases outside their licensing state, creating the opportunity, for example, for British Airways to operate flights from Paris to New York.

The agreement also included a comprehensive new regulatory framework within which these new freedoms could be exercised, reflecting the importance placed by Europe and the United States on safe, secure and effective regulation of the sector. A new body responsible for implementation of the agreement, the Joint Committee, was formed, and new cooperative initiatives in the areas of security, competition and air traffic management were launched.

This ground-breaking agreement has paved the way for new entrants into once sheltered markets and provided an open market for all trans-Atlantic routes between the United States and Europe, thereby facilitating greater competition, encouraging job creation and helping to lower air fares.

Importantly, the first stage agreement also established a road-map for negotiations on further improvements to the agreement aimed at creating additional opportunities for both sides, particularly within each other's domestic markets, and deepening the already excellent level of cooperation on aviation issues of common interest.

When did the second stage negotiations begin?

They started in May 2008, less than 60 days after the first stage agreement came into effect. This timetable was foreseen in the first stage agreement, which established a detailed framework for the second stage negotiations, including a list of priority topics for discussion. Since then, there have been a total of eight rounds of negotiation.

The provisional agreement reached by negotiators on 25 March is consistent with the commitment made by both sides at the 2009 EU-US Summit that they would 'aim to reach a second-stage air transport agreement in 2010 which includes benefits for both sides'. It will be submitted for approval to the Council of Transport Ministers in June of this year.

Why have the negotiations taken so long?

The issues for discussion in the second stage negotiations required careful consideration by both sides. Furthermore, there was a long break in the negotiations leading up to and continuing for a period after the US elections in November 2008. Consequently, the negotiations took some time.

FAQs ON THE FIRST STAGE EU-US AIR SERVICES AGREEMENT

When did the First Stage Agreement enter into force?

The EU-US Air Transport Agreement, signed on 30 April 2007, has been in effect since 30 March 2008.

What were the new rights for EU airlines in the first stage agreement?

The recognition of all European airlines as "Community air carriers" by the US, allowing for the consolidation of the EU aviation sector and the compliance with the November 2002 Court cases in the so-called 'Open skies judgments'.

The possibility for any "Community air carrier" to fly between any point in the EU to any point in the US, without any restrictions on pricing or capacity. This freedom did not exist before 30 March.

The possibility to continue flights beyond the United States towards third countries ('5th Freedom').

The possibility tooperate all-cargo flightsbetween the United States and any third country, without a requirement that the service starts or ends in the EU ('7thFreedom').

So-called '7th Freedom rights' for passenger flights between the US and a number of non-EU European countries, i.e. direct flights between the US and Croatia or Norway.

A number of access rights to the US 'Fly America' programme for the transport of passengers and cargo financed by the US Federal Government.

More freedom to enter into commercial arrangements with other airlines (code-sharing, wet-leasing etc.).

Rights in the area of franchising and branding of air services to enhance legal certainty in the commercial relations in between airlines.

Possibility of antitrust immunity for the development of airline alliances.

Rights for EU investors in the area of ownership, investment and control of US airlines; Rights in the area of inward foreign investment in EU airlines by non-EU European investors; Rights in the area of ownership, investment and control by EU investors of airlines in Africa and non-EU European countries.

What has been the commercial effect of the first stage agreement?

The immediate effect of the agreement has been to remove constraints and enable competition to thrive. Although services have since been affected by the crisis, the number of flights and degree of competition available to consumers is now considerably higher than under the previous set of bilateral arrangements.

In the first year following implementation of the agreement, the effect was considerable, with the total number of flights between the EU and the US in April-June 2008 8% higher than the same period in 2007.

Transatlantic services have increased particularly in those Member States where restrictive agreements were previously in place. In London-Heathrow alone, flights to the US increased by 18 daily flights, an increase of more than 20%. Flights to the US from Spain and Ireland have also increased.

Airlines have also made use of the opportunity to operate transatlantic flights from outside their home country. For example, British Airways' subsidiary, Open Skies, operates daily between Paris and the US destinations of Washington and New York.

Many airlines have made use of the extended code-sharing opportunities opened up by the agreement. For example, SkyTeam partners Air France-KLM and Delta/Northwest have secured antitrust immunity for their operations. Oneworld partners British Airways, Iberia, and American have also applied for antitrust immunity for a closer alliance.

Furthermore, there has been new transatlantic investment in the airline industry. German airline Lufthansa acquired 19% of US carrier JetBlue in February 2008.

How do the EU and the US cooperate in regulatory issues?

The Agreement introduces unprecedented mechanisms for regulatory convergence, notably in competition, state aid and security. The objective is to minimize incompatibilities between the rules and policy approaches on either side of the Atlantic.

The provisions on security are key towards a 'one-stop security' approach. The regulatory cooperation includes also provisions on EU-US technical cooperation in relation to climate change, on consumer protection and on the development of joint EU-US approaches in international organisations.

Are there concrete examples of this regulatory cooperation?

In the field of aviation security, a working arrangement has been reached on reciprocal airport assessments.

In the field of air traffic management and environmental protection, the European Commission and the U.S. Federal Aviation Authority have created the Atlantic Interoperability Initiative to Reduce Emissions (AIRE) Partnership to improve the environmental footprint of air transport with environmentally friendly air traffic procedures from gate to gate.

In the field of competition policy, the European Commission and the U.S. Department of Transportation have been working together to achieve compatible regulatory approaches.

How does the Commission monitor the implementation of the Agreement?

The Agreement establishes a new mechanism: The EU-USJoint Committee. This has already met a total of nine [9] times to oversee implementation of the Agreement and ensure regulatory cooperation.

The sources of these estimates are two Studies undertaken by the Brattle consultative Group:

(i) the 'Economic impact of an EU-US Open Aviation Area' (2002) Commissioned by the European Commission into the benefits of an Open Aviation Area (OAA) Aviation Agreement for the US and Europe; and

(ii) A study commissioned by the Center for Transatlantic Relations at Johns Hopkins University, Baltimore, U.S., and included in the publication 'Deep Integration: How Transatlantic Markets are Leading Globalization.' (2005)